The Great Depression 1929 1941 Roaring Twenties Optimistic

The Great Depression 1929 -1941

Roaring Twenties • Optimistic Time – Wealth and productivity – Medical advancements • Decrease in infant mortality • Life expectancies increased 10 years from 1900

Warren Harding (1921 -23) Calvin Coolidge (1923 -1929)

Main cause of collapse: hubris? • excessive pride or self-confidence; arrogance • “We in America today are nearer to the final triumph over poverty than ever before in the history of any land. The poor house is vanishing from among us. ” - Herbert Hoover, 1928

What accounted for severity? • • • Lack of Diversification Maldistribution of purchasing power Credit structure of economy America’s position in international trade International debt structure Protective tariffs

Warning signs: • Uneven wealth – In 1929 richest Americans (0. 1%) had held 34% of the country’s savings – 71% of individuals earned less than $2, 500 (minimum standard of living) – 200 largest companies controlled 49% of industry

Warning sings continued… • Rise in personal debt – Buying with credit (installment plans) • Radios, vacuums, refrigerators • 80% families had no savings, even though entire families were working

Overproduction • Rising Productivity • Wages Rose, but assembly lines produced goods too quickly • Caused some industries to slow – Automobile, housing • BUT… Stock market kept rising

Playing the Stock Market • Before WWI, only wealthy invested • After, “Get rich quick” attitude prevailed – Newspapers reported on ordinary people – Small investors bet life savings • Buying “on margin” – Buy stock for fraction of the price and borrow the rest

Stock Market Crash • By 1929, prices of stocks soared above their real value • Peaked in Sept. , then slowly declined • Tuesday, Oct. 29, 1929, investors raced to get their money out of the stock market • Initially, only affected investors – 1929 only 4 million of 120 million

Ripple Effects • • Risky loans hurt banks Consumer borrowing Bank runs Bank failures Savings wiped out Cuts in production Rise in unemployment Further cuts in production

Economic Effects (1930 -1933) • Collapse of Banks – 6, 000 bankrupt or closed – Depositors lost $2. 5 billion • Widespread unemployment – 15 million, 25% of workforce • Collapse of farm economy – By 1932, farm income down 60% – 2/3 of farm families lose land

Normal Business Cycle • Economic… – Expansion – Peak – Contraction – Trough • Recession vs. Depression – Depression = prolonged and severe

• Great Crash of 1929 triggered most severe depression in U. S. history • Great Depression (1929 -1941) • As for welfare capitalism – Henry Ford shut down Detroit auto factories – Put 75, 000 out of work • The GNP: $104 billion (1929) to $56 billion (1933)

Cycles of Depression • Investors and Businesses – Businesses lose profits, Investors lose $$$ • Businesses and Workers – Consumer spending drops, businesses cut investment and production (some fail), workers are laid off • Banks – Businesses and workers cannot repay loans, banks run out of money/fail, bank runs occur, savings accounts are wiped out

World Payments • • • Overall U. S. production plummets U. S. investors have little/no money to invest U. S. investments in Europe/Germany decline German war payments to Allies fall off Europeans cannot afford American goods Allies cannot pay debts to United States

Interdependent World • By 1930 s, international banking, manufacturing, trade connected nations – Latin American depended on U. S. for goods – Europe depended on U. S. loans/investment – U. S. was world’s leading economy • After WWI, Allies (France/G. B. ) relied on Germany’s reparations to repay U. S. – After market crash, U. S. stopped $ to Germany – German economy failed, Allies’ payments to U. S. ended

Great Depression Part II

President Hoover (1929 -1933)

Future 1 st Lady Lou Henry (age 17)

“Hoovervilles” • Shantytowns named for President Hoover

Sacramento, 2009

Social Effects • Hardships at all levels – Few prospects for laid off white-collar workers • Poorest hit hardest – Hunger, sickness, homelessness • Homeless/jobless became drifters – “hit the rails”

Farm Distress • Crop prices plummeted – Families could not pay mortgages/loans • Families lost farms to banks – Banks would auction farms off • In South, landowners expelled tenant farmers and sharecroppers

The Dust Bowl (1931 -1940) • Severe drought and over-farming – Severe soil erosion, soil (“dust”) clouds • Removal of prairie grasses exposed topsoil • Wind blew it for hundreds of miles – Cities in east had darkened skies – Reports of soil landing on ships in Atlantic

Dust Cloud Approaches Stratford, TX, 1935

“Okies” driving to California

• “Migrant Mother” by Dorothea Lange (1936)

Surviving the Depression • • Nothing wasted Planted “relief gardens” in cities Breadlines and soup kitchens widespread Farm families stuck together – Penny auctions • Millions left home to “ride the rails”

Americans took their failures personally • Widespread Shame – Especially w/ men who lost jobs • Many were embarrassed or too ashamed to accept charity • Discrimination – Nativism – Deportation – Higher unemployment in minority groups

Americans sought political solutions • In Europe, riots and political upheaval • Most Americans trusted democratic process • Communism and Socialism made small gains • Eventually, Americans blamed Hoover directly

Hoover’s Limited Strategy • Insisted on confidence in system • Blamed depression on world-wide crisis • Supported voluntary controls by industry – For example, to maintain min. wages • Hoover held rigidly to his plan (voluntary controls and confidence), and economy continued to worsen

Finally, The Government Acts • Began with govt. spending on public buildings, roads, parks, dams • Hawley-Smoot Tariff (1930) – Highest import tax in history – Backfired, Europeans raised their tariffs • Still, Hoover believed: – state and local govts should handle relief – direct federal assistance would destroy people’s self respect and create a large beaureacracy